Libor Punishment Could Be Worse Than the Crime

By Mikhail Chernov – Before authorities topple more banks’ managements and scrap an indicator that has served the market for three decades, they should ask themselves a question: Who was really harmed?

Banks lowered the borrowing rates they reported for the calculation of Libor because they wanted to avoid the impression that they were in distress. Some estimates suggest U.S. dollarLibor might, at certain times during 2008, have been artificially depressed by more than 0.30 percentage point.

The misreporting was bad for investors in various securities, such as mortgage bonds tied to Libor, because it artificially lowered the payments they received. It also provided a welcome relief for millions of struggling U.S. homeowners with floating-rate mortgages, and greatly helped the Federal Reserve in its efforts to get interest rates down. more> http://tinyurl.com/cd55rzy